Canadian merger and acquisition (M&A) activity is expected to ramp up in 2016, with more hostile takeover struggles likely in the cards, according to a new report released Tuesday by Citibank Canada.
This is the second year Citi has commissioned Mergermarket to survey 50 Canada-based senior executives directly involved in M&A decision-making.
This year’s report finds that 70% of Canadian M&A professionals are expecting more deal activity in 2016 compared with 2015, and that 20% are expecting a significant increase; none are anticipating a decline.
The turmoil in the energy sector, and the weak Canadian dollar, are seen as likely driving buyers into Canada looking for bargains; whereas only a third of respondents expect to see a rise in outbound deals.
The energy and mining sectors are seen as the most likely to face increased M&A action, as low commodity prices continue to weigh on companies in those areas, which may spark consolidation. This, in turn, is attracting private equity players, the report says. Additionally, the availability of cheap financing was also cited as positive factor for M&A.
The biggest obstacles to deal activity will be the “valuation gap” between buyers and sellers, according to the report, followed by volatility in global commodity prices.
Given the concern about the “valuation gap”, the report suggests that hostile deal activity could also be on the rise this year. Hostile deal activity has “risen dramatically in the last two years,” the report notes, and “a number of factors are converging that suggest a new wave of hostile takeovers may be on the horizon.”
For one, the report notes that periods of equity market turmoil are often followed by increased hostile deal activity. Coupled with easy access to credit, and “the shareholder-friendly environment in Canada”, the report says “a rash of hostile and unsolicited offers could come to the fore in 2016.”